Thought Leadership


A compelling business case for safety

May 23, 2012
KEYWORDS costs / injury / leadership / safety
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safety costs to businessThe Great Recession likely has forever changed Operations leadership’s view of safety. Gone are the days when safety professionals could lean on “it’s the right thing to do” to justify their actions and initiatives. Operations leadership rightfully expects that the Safety function will contribute to the bottom line and show a return on investment for the funds it is given in its budget.

Quantifying the value provided by the safety function isn’t easy—most of what it does is cost avoidance rather than profit, and when one talks about cost avoidance, the conversation can quickly turn hypothetical. Despite these difficulties it is still possible to put together a compelling business case for safety.

Know what’s important

Every industry has some measure that is more important than anything else, and that measure is seldom safety. In mass production, downtime is an area in which Operations leadership is keenly interested, in other industries sales are what gets the most attention, still others it is delivery time or days in production. While most (if not all) of these companies care about safety, safety is not seen as “keeping the lights on” and typically efforts to keep the workplace safer are seen as completely divorced from the other business measures.

The key to creating a compelling business case for safety is to express injuries in terms that Operations understands and to which it can relate. Safety professionals must demonstrate the relationship between safety and whatever metric the organization links most closely to its success. Years ago, I worked with a heavy truck manufacturer where a sharp safety professional was able to express the cost of injuries in terms of the additional number of trucks that the plant would have to produce to recoup the costs incurred because of injuries.

Know your costs

An organization’s cost of injuries should include both direct costs and indirect costs. Direct costs are generally easy to gather and/or calculate. These are costs like fines, medical treatment for the injured worker, and Worker’s Compensation costs.

Surprisingly, many organizations jealously guard Worker’s Compensation cost information from the safety department despite the obvious connection between the two areas.

Indirect costs include things like loss of productivity, damage to products, and damage to the company’s image or brand. Indirect costs are difficult to calculate and Operations leadership may see attempts to quantify indirect costs as juking the stats.

For example, let’s take a look at an injury where the worker cuts his hand and requires stitches. Halfway through an eight hour shift a worker cuts his hand. The injury requires production to stop for 12 minutes, and a supervisor has to drive the injured worker to the clinic that is 10 minutes away. It takes an hour to treat the injury after which the injured worker is sent home.

Direct costs

  • 12 minutes loss of production (average wage of idled workers x average hourly pay x .2).
  • Wage of injured worker (wage x 4 hours)
  • Wage of supervisor while driving the worker to the clinic, waiting during treatment, and driving back to the workplace (wage x 1.4 hours)
  • Wage of janitor to clean up blood (wage x 15 minutes)

Cost of treatment

  • Wage of safety professional to complete required paper work.
  • Wage of the safety professional to conduct the incident investigation
  • Wage of the supervisor to participate in the incident investigation
  • Wage of witnesses who participate in the incident investigation
  • Wage of the Operations manager to read and react to the incident investigation
  • Wages associated with OSHA inspection
  • Fines

Indirect costs

  • 12 minutes loss of production (average wage of idled workers x average hourly pay x .2).
  • Increase in insurance premium
  • Costs associated with decreased morale
  • Cost of legal consultation
  • Court Costs
  • Legal fees

It’s wise to present only the direct costs as actual costs, but it is also a good idea to reference the indirect costs as costs above and beyond those that you can quantify with hard figures.

Depending on how hospitable your Operations leadership is to safety, you may be able to skip the actual hard figures in favor of an estimated rate. OSHA has a wonderful tool for calculating the costs of safety that includes both direct and indirect costs that the agency provides for free on its website.

(www.osha.gov/SLTC/etools/safetyhealth/mod1_estimating_costs.html).

The tool estimates the cost of a worker fatality at $910,000 (a ridiculously low number based on a National Safety Council study from 1998—but realistically this cost has probably not dropped from that time), $28,000 for a Lost Work Day injury, and $1,300 for a recordable injury. By entering one’s injury figures into the calculator one can estimate a fairly reliable cost figure. This same website affords you the opportunity to calculate the impact of the cost of injuries on profit and sales as well.

Make it personal

Several years ago I discovered a way to save companies millions of dollars by reducing their Workers’ Compensation costs. After saving companies an average of $2.5 million (in one case saving a walloping $8.5 million in less than 8 months) I spent the next four years unsuccessfully trying to convince other companies to engage me for my services. 

I learned later that I was not speaking the same language as my prospects. On one hand I had safety professionals who tended to be risk averse and shy about introducing me to the decision makers in Operations. On the other hand I had safety professionals who couldn’t see how what I was suggesting was different from what they where already doing or were reluctant to engage outside services.

In cases where I did have access to the Operations leadership I was equally likely to either make a sale or stiff resistance. Nothing I said would pique their interests.

I was flabbergasted; didn’t they WANT to reduce injuries and safe millions in months? 

Ultimately that particular business venture was a victim of the great recession and I parted ways with the company for whom I had invented it.

Recently I was talking about my puzzling dilemma with the COO of a manufacturing firm and he told me that the average plant manager didn’t care about Workers’ Compensation costs since that was considered a corporate cost and generally wouldn’t affect the plant manager’s bonus.

With this explanation things started to make great sense. People respond to the things that affect them personally. If I had positioned things just a little bit differently I probably would have been wildly successful.

If safety professionals want to be successful they have to find a way to make the decision makers successful and that is easier than most people think. The answer is simple: find out what is important to decision makers and relate safety in terms that they can understand. Safety professionals need to be careful however, and never EVER exaggerate or misrepresent the costs.

From Phil LaDuke’s personal blog http://philladuke.wordpress.com/2012/

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